Dive Brief:

• The National Owners Association, a recently formed independent organization representing McDonald's franchisees, told its members in a November memo to not begin any new renovations, Restaurant Business reported.
• The association wants McDonald’s internal franchise organization, the National Leadership Council, to finish negotiating revisions to the remodeling process before franchisees make any additional financial commitments.
• Franchisees have been particularly critical of a service area modernization wall that would split the kitchen from the dining area, saying the wall doesn't make operations or returns better and should be an option to include instead of a requirement.

Dive Insight:

Operator angst continues to grow despite McDonald's efforts to ease tensions and work with operators. Late last year the fast food giant pushed back renovation deadlines for its tech-centric "Experience of the Future" restaurants to 2022, but said it would reimburse franchisees who accepted the offer 40% instead of the original 55%.

Remodels, which include self-ordering kiosks, delivery systems and additional drive-thru lanes, have been rolled out to about half of McDonald's 14,000 U.S. locations and more locations are expected to be renovated this year, according to Restaurant Business. McDonald's, which will invest $6 billion in renovations, has argued that these remodels will help increase sales and make it more competitive.

But franchisees continue to worry that the upfront investments — including lost revenue when stores close for interior upgrades — even after reimbursements would not result in a better ROI.  Even executives admitted during the third quarter earnings that guest counts and sales after a completed project were inconsistent. Restaurant analyst Chris O'Cull told Restaurant Business that it may not be until this year or 2020 that the brand will really be able to reap the benefits of the remodels. If sales do improve, it may be enough to temper some operator complaints. 

The NOA also told its members in October that up to 40% of operators could lose their leases if sales don't increase after remodels, adding additional concerns among operators. McDonald's has disputed the number, saying many of its operators are doing well financially, but a recent survey conducted by the National Leadership Council revealed that many are feeling the pinch.

The survey revealed almost nine out of 10 franchisees were unsatisfied with cash flow, according to Restaurant Business. Many franchisees are hurting financially after increased costs related to menu changes and various initiatives that didn't really increases profits. The additional financial requirements related to what many feel are complicated remodels haven't been helping either.

Halting renovation plans could be what franchisees need to leverage a more agreeable financial position, but it also could complicate future plans since construction costs are rising unabated, adding additional financial constraints to franchisees.